Maiman Shocks Telco Barons, Buys Smile

Businessman Yosef Maiman caught Israel's communication sector by surprise yesterday, buying the controlling interest in long-distance carrier 012 Smile from Shaul Elovitch.

The agreement was closed within just 48 hours. Maiman, who is currently in Brazil, tied up the NIS 1.2 billion takeover by phone.

Elovitch picked Maiman despite having received, reportedly, higher offers from mobile carrier Partner Communications and French businessman Patrick Drahi, who owns a 44% stake in the HOT cable television company.

Maiman began his business career as an economist at fuel company Sonol and made his fortune in energy, mainly through his stake in Merhav. He also owns 51% of the Channel 10 television channel. The acquisition of 012 Smile will be his first foray into the telecommunications industry, which has proved stable and profitable through the global economic crisis.

Elovitch recently acquired the controlling share in the landline carrier Bezeq for NIS 6.5 billion, through Smile. Maiman will be acquiring only Smile's brand name and its long-distance and Internet operations, without taking on either its cash assets or its debts. Smile has about 570,000 Internet customers and controls about one third of Israel's long-distance telephony market. The company also has about 120,000 landline customers.

Smile's current market value is around NIS 1.5 billion, although its market cap has soared since the announcement of the Bezeq deal. Before the deal was announced, late last month, the company was trading at a market cap of about NIS 980 million.

Maiman is acquiring the company through the Nasdaq-listed holding company Ampal-American Israel Corporation. Ampal's assets are composed primarily of energy firms, including natural gas company EMG and wind energy firm GWE, as well as chemicals (Gadot) and real estate and entertainment assets.

Ampal's cash assets total about $140 million, meaning that Maiman will have to come up with additional financing. He should be able to issue debt to finance the new acquisition, since with a regular quarterly cash flow of NIS 59 million 012 Smile is quite a cash cow.

Banking industry sources said yesterday that financing for the deal has yet to be finalized, although Maiman is a customer of both Bank Hapoalim and Bank Leumi, which will presumably be be competing for the business.

Smile saw revenues of NIS 290 million in the second quarter of 2009, and the company's earnings before the deduction of interest, tax and amortization expenses reached NIS 71 million.

NIS 50 million discount

The pending agreement signals an end to Elovitch's relatively short search for a buyer, after his acquisition of Bezeq, which owns Bezeq International - Smile's competitor.

Elovitch's choice of Maiman over Drahi, who reportedly offered NIS 1.25 billion for Smile 012, NIS 50 million less than Maiman's winning bid, is thought to be aimed at keeping a future rival from growing too strong. Another consideration may have been the expected quick regulatory approval of the deal by the Communications Ministry and the Anti-Trust Authority, because Maiman's current holdings include very few operations that are parallel to those of Smile.

Maiman visited Smile offices only once in his evaluation of the company, and based his decision mainly on the company's due diligence reports. Marathon negotiations continued through Sunday night and at 5 A.M. yesterday the parties reached an agreement. Representing Maiman in the negotiations were Ampal's chief executive Irit Eluz, Gadot chairman Erez Meltzer and Leo Malamud, Maiman's close confidant and Merhav's chief financial officer.

Observers believe Maiman might vie in the future for Elovitch's holdings in the satellite television provider Yes, as well as in Bezeq, in a bid to merge it with Smile. Elovitch himself had envisioned this scenario before acquiring a controlling share in Bezeq. But that could could put him at loggerheads with the regulators, since he would not be able to maintain holdings in both Channel 10 and Yes simultaneously.